While a new year can mean a new start, few grocery industry leaders are anticipating much will change in 2010.

They expect the new year will be a continuation of a difficult 2009, which challenged operators to compete amid price deflation, tight credit markets and a heavy new emphasis on value to meet a U.S. shopper base beset by financial uncertainty and high unemployment.

Optimism for 2010 centers on retailers being able to keep their own costs down, and for deflation to reverse itself. Retailers are also anxious to apply the lessons that operating in 2009's difficult environment provided, including the ability to remerchandise on the fly. Many were reluctant to predict a reversal of fortunes in the grocery business until job growth perks up again, perhaps late in the year.

Mike Gilliland, chief executive officer of Sunflower Farmers Market, the Boulder, Colo., natural and organic food chain, spoke for many in the supermarket industry when he predicted a dour business outlook.

“I'm not too optimistic about 2010,” he told SN. “I think we're still going to be fighting it out for the customer. Consumers are still going to be fairly traumatized, and will be through the end of the year. We're not counting on a huge change in behavior next year. Hopefully, we're wrong, but I don't think so.”

MAKING VOLUME GAINS COUNT

As 2009 came to a close, independent grocers were feeling the pinch of a newfound emphasis on value by some of the industry's largest players.

“If I had to put a word on it, ‘difficult’ is the one I would use, inasmuch as the markets have heated up so much, with competitors — especially Wal-Mart, Kroger and Safeway — taking a much more aggressive stance toward maintaining volume,” said Dennis Butler, executive vice president and chief operations officer, Laurel Grocery Co., a voluntary wholesaler based in Loudon, Ky. “That's going to make it difficult for the independents and smaller groups out there. That said, I think they're up to the task.”

Butler said Laurel's independent customers can succeed by being more nimble than the larger players. Price and promotional pressure from the giants in the industry heated up toward the end of 2009, and he expects it will continue into the new year, even as some take hits on their profits.

“Wal-Mart didn't come close to running the kinds of hot ads and promos we've seen on grocery items until about four to six weeks until Thanksgiving. But I think they will continue that,” he said. “The sales atmosphere will remain difficult for anybody to make huge moves in any direction. At some point in time, as Kroger found out in their third quarter, there's a cost to maintaining volume. So finding that fine-line balance is going to be difficult for everybody.”

In 2009, Butler said, “We learned some old lessons all over again: Deflation is never fun. We started seeing pricing drop by early summer, and it was like crazy: We saw meat really drop, milk, eggs — you name it. Those were key categories taking significant hits, that makes the sales look worse than they really are.

“The other thing we learned when things get tough is that we haven't been watching expenses as close as we should, need to, and have to,” he continued. “Whether it's labor or rent negotiations or operating expenses, we need to find a way to drive them down and keep them down for a long time to come.”

Laurel is also working to better align its interests with those of suppliers in an effort to get better pricing, stronger promotions and more effective retail operations, he said.

“We're taking a real hard look at how we work with the vendor community, how our selling matches up with how they are selling and how they want to work,” he explained. “And we will take that to retail. We're doing a great deal of work with the formats we offer to retailers, making sure they are aligned with the way vendors are going to market, so we can intensify and increase our promotional activity.”